Budget Office

BOR balance policy

SECTION 21: FISCAL POLICY AND PROCEDURES

21-6 PROGRAM REVENUE BALANCES AND RESERVES POLICY

Scope

This policy addresses program revenue account balances and appropriate reserve levels at UW System and UW System institutions.

Purpose

The purpose of this policy is to ensure the financial health and stability of each UW System institution and the UW System as a whole and to communicate that more broadly and clearly. The policy balances prudent fiscal management with adequate levels of resources to carry out the universities’ missions, programs, strategic goals, and objectives in an effective and efficient manner.

This policy ensures that:

individual institutions have the necessary flexibility to manage program revenue accounts to meet financial commitments, plans, and goals.

reporting of program revenue cash balances is at a level that provides the Board of Regents, Legislature, and public with a complete, consistent, and transparent understanding of end-of-year balances.

institutions are incentivized to continue to invest in and cultivate creative academic programs to reach all students seeking higher education.

institutions are incentivized to invest in facilities that provide a world-class education.

the University of Wisconsin is not incentivized to undertake unnecessary end-of-year spending in order to meet restrictive carry-forward caps.

Definitions and Methodology for Calculating

Program revenue balances shall be calculated on a cash basis subsequent to year-end reconciliation. Balances will be calculated starting with the prior year’s ending cash balance, adding revenues received and deducting expenditures made during the fiscal year. Balances will not reflect accruals for advance deposits received for future academic terms, accounts payable, or accounts receivable.

Year-end program revenue balances shall be summarized as follows:

Tuition (Academic Student Fees and Extension Student Fees),

Auxiliary Operations,

General Operations, and

Other Unrestricted Program Revenue,

Federal Indirect Cost Reimbursement,

Gifts,

Nonfederal Grants and Contracts,

Federal Grants and Contracts, and

Other Restricted Program Revenue.

A description of UW appropriations included in each category of program revenue balances will be provided to aid in understanding the information presented (attached).

Year-end balances in (1) Tuition (Academic Student Fees and Extension Student Fees), (2) Auxiliary Operations, (3) General Operations, and (4) Other Unrestricted Program Revenue shall be expressed in dollars for the UW System as a whole and for each UW institution and as a percentage of the total expenditures by that category for the fiscal year. Tuition balances shall be expressed as a percentage of the combined expenditures for GPR (less GPR-funded debt service) and tuition combined.

Reserves represent a portion of fund balances. Reserves are defined as funds set aside to protect against unbudgeted future expenses or losses, such as enrollment fluctuations, unexpected costs, or loss of state or federal aid. Reserves are not funds set aside for specific expenditures or commitments, but serve as an operating contingency. Reserves aid in the management of the University’s and state’s cash flow to meet daily expenditure needs.

Designated balances are defined as funds set aside for specific expenditures or commitments. They include, but are not limited to, legally enforceable contracts, publicly made commitments, differential tuition, encumbrances, and advanced deposits.

Federal Indirect Costs Reimbursement year-end balances shall be expressed in dollars for the UW System as a whole and for each UW institution and as a percentage change from the prior year-end balance.

Policy Statement

It is the policy of the Board of Regents that the UW System and UW System institutions maintain appropriate reserves to protect the institutions in cases of sudden shortfalls in revenue, to provide for extraordinary events, and to protect against unbudgeted future expenses or losses. Institutions should target a reserve level of 10% of total fiscal year expenditures for each of the following two categories: (1) Tuition, and (2) Auxiliary Operations. This 10% target falls within the recommendation by the Government Finance Officers Association of reserve levels between 5-20% and should assist institutions in meeting the Higher Learning Commission requirements for financial health. Institutions with reserves of less than 10% of total fiscal year expenditures shall submit a savings plan on how they will achieve the minimum and within what timeframe.

The Board of Regents recognizes there are many instances where accumulation of balances beyond a reserve level is a prudent practice in order to achieve strategic priorities over a multi- year period (establishing new academic programs, purchasing major equipment, funding start-up packages for new faculty, etc.). Institutions with balances above 15% of total fiscal year expenditures shall submit justifications for the amounts above the threshold along with a defined multi-year spending plan for each of the following four categories: (1) Tuition (Academic Student Fees and Extension Student Fees), (2) Auxiliary Operations, (3) General Operations, and (4) Other Unrestricted Program Revenue. Balances above the 15% threshold should bedesignated by the Chancellor for specific purposes.

The 15% threshold is established to determine a limit which will require a report and Board approval. It is not established as cap on end-of-year balances.

Oversight, Roles, and Responsibilities

Appropriation balances and reserve analysis for each institution and the System as a whole shall be reported annually as soon as practicable after the fiscal year-end reconciliation. For those institutions with reserves less than the 10% targeted threshold, the Board of Regents will determine whether the institution has an adequate plan in place to meet the target within a reasonable period of time. For those institutions with balances above 15% of total year-end expenditures, the Board of Regents will determine whether balances are adequately justified.